Thursday, May 20, 2010

The Senate approved an amendment to the financial reform legislation creating a council of federal financial agency inspector generals, including the IGs at the SEC, CFTC, FDIC and the Fed. The council will meet quarterly and compare notes and talk about their investigations in order to ensure that they are not duplicating each other’s work. They will also discuss collective approaches to systemic risk. The council must also submit an annual report to Congress recommending improvements to financial oversight. Section 989E.

The Grassley-McCaskill Amendment also requires the SEC and CFTC inspector generals to report to the full Commission rather than only to the SEC or CFTC Chair. It will additionally require that two-thirds of the Commission must vote for cause to fire the inspector general. Section 989D. According to Senator Grassley, the two-thirds for cause vote ensures the possibility that any political attempt to remove an agency inspector general will be met by dissent from some Commission members. Cong Record, May 18, 2010, S3877.

The amendment also requires the SEC and other inspector generals to disclose the results of all their peer reviews to Congress, thereby making them public. Also, the SEC and other financial regulators would have to respond when inspector generals identify deficiencies in their agencies, either by taking corrective action or by explaining to Congress why they did not take effective action. Section 989C.

There are two types of federal inspector generals created by the Inspector General Act, those appointed by the President and those designated by the agency, such as the SEC and CFTC inspector generals. The original Section 989B in the Senate bill would have replaced agency designated inspector generals with IGs appointed by the President. The amendment strips out the original Section 989B and replaces with a new 989B, ending the effort to make the SEC and CFTC IGs presidentially appointed. According to Senator Grassley, there is no evidence that presidentially-appointed IGs will be more independent than agency-designated IGs. In fact, citing the SEC’s inspector general as an example, Senator Grassley said that agency-designated IGs can be fiercely independent despite the fact they could be removed by the agency. Cong. Record, May 18, 2010, S3876.